BHP says tax rises pose threat to Chile’s mining industry

Increased taxes and royalties risk damaging the mining industry in Chile, the world’s biggest producer of copper, according to the head of BHP’s operations in the Americas.

Last week, a congressional committee in Santiago approved changes to a Mining Royalty Bill that would add a progressive tax on sales of copper and lithium, metals that are expected to play a crucial part in the shift to cleaner forms of energy.

While the bill is unlikely to pass in its current form, analysts believe higher taxes and royalties are coming in Chile and other resource rich countries.
Chile is also planning to rewrite its constitution.

The sharp rise in commodity prices, copper traded above $10,000 a tonne last week for the first time in a decade, is stoking concern that miners will be targeted by governments looking to pay for post pandemic recovery programmes.

Former Australian prime minister Kevin Rudd recently called for a super-profits levy on the country’s three big iron ore producers — BHP, Fortescue Metals Group and Rio Tinto. In Peru, the frontrunner in its presidential election has promised a fairer distribution of mining wealth.

In Chile, increased taxes could make foreign mining companies wary of investing in new projects or expanding existing mines to meet growing demand for copper and lithium from makers of electric vehicles and the renewable power industry.

“You can absolutely try and take more from the golden goose but you just need to be very clear on what the implications are on that longer term”, Ragnar Udd, President of BHP Minerals Americas, said in an interview with the Financial Times. “And the sort of reforms that are being put forward at the moment will be really quite damaging to the industry.”

Chile is the largest copper producing country globally, accounting for approximately 28 per cent of global mined production of the metal, used in everything from household appliances to power cables. Copper is a key part of its economy, however many of its mines are ageing with declining grades of ore and high operating costs as they burrow deeper into the earth.

“The deposits in Chile are not the deposits from 20 to 30 years ago,” said Udd. “The reality is grades have declined significantly. We’ve gone over the last 15 years from about 1 per cent copper down to 0.6 to 0.7 per cent . . . so you’ve got to work harder and find different ways to be more productive.”

“In the last 15 years the reality is the share of copper coming out of Chile has gone from both 34% of the world’s market to about 28 per cent,” he added.

Udd, a Canadian engineer who joined BHP in 1997, started his current role in November. As well as BHP operations in Chile, which include Escondida, the world’s biggest copper mine, he is also responsible for Jansen, a giant potash project the company is looking to develop in Canada.

While the Americas business is often overlooked by investors who focus on BHP’s main source of earnings, its iron ore mines in Western Australia, Udd believes it will be key to growth and the company’s pursuit of “future facing commodities”.

“I really see this as being a growth engine for the organisation over the next 30 to 50 years,” he said.

BHP’s board will decide whether to approve the first stage of the Jansen project mid-year but having already spent $4.5bn is likely to go ahead.

“What we like about potash is some of the diversification we see it bringing into BHP,” said Udd. “Not only does it provide geographical and customer diversification . . . the demand growth drivers for potash are slightly different than copper.” Potash consumption has historically been closely tied to population rather than industrialisation.